The U.S. Dollar index (DXY) is marginally up
by 0.1% to 105.98, while the EURUSD is down by 0.1% to 1.07230. Despite the
apparent market tranquility, significant turbulence looms beneath the surface.
The May PCE Index in the United States, indicating a continuous slowdown, was
largely ignored by investors. Instead, the market's focus has shifted to
political developments.
Last Friday, U.S. 10-year Treasury yields
surged to 4.40%, a move driven by chaos within the Democratic party. The yet
unofficial nominee, Joe Biden, faced a significant setback after losing the
first debate to Donald Trump. Many Democrats are pushing for a more capable
replacement, but Biden's family and the Democratic majority continue to support
him, making his step down unlikely. Trump's increasing chances of winning the
presidential race have further unsettled the market.
Adding to the tension, the U.S. Supreme Court
ruled that Trump has partial immunity from criminal prosecution, pushing
10-year Treasury yields up to 4.49% on Monday. Investors fear that a Trump
presidency could lead to the reintroduction of more trade tariffs, exacerbating
inflation and making Federal Reserve interest rate cuts unlikely in the
foreseeable future. Consequently, as Trump's victory prospects improve, so do
the yields, strengthening the Dollar despite weak July PMI data and positive
parliamentary election results in France.
In France, the far-right National Rally party
led by Marine Le Pen won the first round of parliamentary elections with
33.15%, although this was below expectations. The left-wing New Popular Front
(NFP) coalition came second with 27.99%, and President Emmanuel Macron’s
Ensemble alliance came third with 20.76%. The NFP and Macron's party are
forming an alliance to challenge National Rally in the second round on July 7.
Le Pen has stated that her party will only lead the government if they achieve
an absolute majority, which is now in doubt. The EURUSD rose to 1.07760
following these developments.
Investors are also keenly awaiting speeches
from European Central Bank President Christine Lagarde and Federal Reserve
Chair Jerome Powell at the European Central Bank’s conference in Sintra,
Portugal. The key question is how recent political developments will impact
central bank policies.
Additionally, attention will be on the
services PMIs in the Eurozone, the U.K., and the U.S., as well as the ADP
Nonfarm Payrolls and FOMC Minutes on Wednesday. Following a brief pause for
Independence Day in the United States, the June labor market report will be
released on Friday.
The market is also poised for the second round
of parliamentary elections in France on July 7, which could trigger a
significant reaction next Monday.
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